SACRAMENTO – California’s budget deficit will grow to $28 billion through June 2010 unless lawmakers take bold action to close the shortfall, possibly including a hike in the state income tax, the Legislature’s nonpartisan analyst said Tuesday.

The Legislative Analyst’s Office urged lawmakers to act immediately on Gov. Arnold Schwarzenegger’s proposals to close the deficit for this fiscal year, projected at $11.2 billion – about 11 percent of the state’s general fund. They include a 1 cent sales tax increase and $4.4 billion in across-the-board spending cuts.

Legislative Analyst Mac Taylor supported the framework of the governor’s plan and called it “comprehensive and ambitious” because it does not rely on borrowing. His report goes on to say that cuts alone will not solve the problem because the state’s weakening economy is cutting the flow of tax revenue to the state.

The Republican administration had projected a $24.5 billion hole for the rest of this fiscal year and the one that runs from July 1, 2009, to June 30, 2010. But the analyst’s office estimates tax revenue will be even lower, which will widen the shortfall.

Since the governor signed the overdue state budget in September, revenue has been coming in lower than projected. It is $1 billion below the $22.6 billion that was expected for the first quarter of the fiscal year, according to the state Department of Finance.

The revenue collapse is so bad that if lawmakers did nothing, the state would face $22 billion shortfalls each year from 2010 to 2014, the analyst’s report said.

Taylor said the governor’s proposals would address only about half the state’s long-term problems. He proposed raising the state income tax by 5 percent for all taxpayers in 2009. The increase would be deductible for federal taxes.

Another option is to boost the licensing fee on vehicles, which Schwarzenegger cut when he took office in 2003. That action cost the state about $6 billion a year.

The legislative analyst said increasing a portion of the vehicle license fee would generate about $1.6 billion annually, money that could be used by local governments on public safety and mental health programs. The state would benefit because it would not have to compensate local governments for the amount they lost when Schwarzenegger cut the licensing fee.

The state’s financial officers have been urging swift action amid a Wall Street nosedive and as the housing market continues its slide.

The tightened credit market is adding to California’s fiscal misery. The state is having trouble borrowing money to pay its daily expenses, a routine action the state takes each year until most of its tax revenue arrives in the spring.

State Treasurer Bill Lockyer cited unfavorable market conditions in postponing the issue of $2 billion in short-term loans next week.

Lawmakers have scheduled a budget hearing on Friday to debate the governor’s proposals. The legislative session ends Nov. 30.

Republican lawmakers said they agreed with the call for swift action but disagreed that the widening deficit must be solved with higher taxes. They maintain that tax increases will further hurt a softening economy.

Assembly Budget Committee vice chairman Roger Niello, R-Sacramento, instead suggested prioritizing current spending, suspending new programs the state can no longer afford, adopting a plan to boost employment and implementing a state spending cap.

A day earlier, Assembly Minority Leader Mike Villines, R-Clovis, handed the governor and legislative leaders a copy of the book “The End of Prosperity,” warning against raising taxes in a slumping economy.

The legislative analyst said Republican lawmakers who have resisted raising taxes no longer have a choice.

While California has experienced larger deficits in the past, Taylor said the current budget problem is the worst in state history because of the projected steep decline in tax revenue over the next five years.

“I think the magnitude of the problem has now reached such a level that we’re not clear how you can do it on one side or the other,” the analyst said during a news conference after releasing his report.

In addition to a 1.5 percent sales tax increase, lawmakers are being asked to consider expanding the sales tax to more services, such as vehicle repairs, appliance and furniture repairs, veterinarian services and golf fees.

Lawmakers also will consider Schwarzenegger’s proposals to raise the registration fee for vehicles by $12 and tax companies that extract oil from California, a step that would generate an estimated $528 million this year.

The governor also has suggested state workers take a one-day-a-month unpaid furlough and forgo two paid holidays – Columbus Day and Lincoln’s Birthday.

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